Everyone's Competing For Access To This Country's Natural Gas Reserves

Turkmenistan's natural gas reserves are the fourth largest in the
world according to energy giant BP, behind
Russia, Iran and Qatar. The reclusive Central Asian nation
is far from alone, however, in hoping to capitalize on this
fact. Numerous outsiders including, but not limited to
Russia, India, Pakistan, Turkey, China, the US all hold interests
in the nation’s vast hydrocarbon stores. Some seek direct
access to the reserves for energy purposes, while others’
interests are more subtle and strategic. We’re going to try
to break down these competing interests into country-specific
narratives to flesh out the importance and complexity of the game
developing in and around Turkmenistan.

First, here’s an intro to Turkmenistan’s resources and the state
of play. Its precarious location bordering Iran to the
south and Afghanistan to the southeast hardly positions it for
easy piping to its thirsty Asian neighbors to the east.
Nonetheless, that’s precisely the aim of the
Turkmenistan-Afghanistan-Pakistan-India Natural Gas Pipeline
(TAPI). The Asian Development Bank has agreed to $1.5
million in financing to help attract private contractors to
survey and develop proposals for the ambitious project, but will
likely provide further assistance in the future. The
pipeline will have the capacity to carry 90 million standard
cubic meters per day (mmscmd) and is expected to operate for 30
years starting in 2018. According to the Economic Times,
India and Pakistan would get 38 mmscmd each, while the remaining
14 mmscmd will be supplied to Afghanistan. The pipe would feed
from the Iolotan field in Mary province (one of the five largest
in the world) or the Dauletabad field in Amu-Darya Basin of Ahal
province. The TAPI pipeline is a direct competitor of the
Iran-Pakistan-India (IPI) pipeline. The helpful map below is
provided from Eurasia Energy Analysis.

Turkmenistan says its portion of the Caspian Sea holds an
estimated 11 billion tonnes of oil and 13.1 to 21.2 trillion
cubic meters (tcm) of gas, with 32 licensed blocks are up for
tender. Those familiar with Turkmenistan understand that
most statistics coming from its government are uncorroborated at
best. Often stats announced by President Berdymukhamedov
are taken for gospel as few if any sources for info on
Turkmenistan exist. On September 13th, it
announced it would soon up annual production to 250 billion cubic
meters by 2030.

Implications

So what does this inflammable bonanza mean for Turkmenistan, its
neighbors and stakeholders in the region?

Turkmenistan

Recent growth and plans for rapid expansion are due, in no small
part, to the projected cash flows from Turkmenistan’s vast
reserves. The nation is engaged in a series of
multi-billion dollar construction projects in the next few years
including a $5 billion Olympic village complex, development of new gas
fields in the east of the country, construction of a
new east-west gas pipeline to tap into the
Trans-Caspian Gas Pipeline to Azerbaijan; the development of
Turkmenbashi seaport; the development of the Avaza tourism
economic zone; and the construction of Ashgabat International
Airport.

Russia

Russia currently buys about 12 billion cubic meters a year in
natural gas from Turkmenistan. According to James Coyle of Eurasia Energy Analysis, “The
Russian National Energy Institute has recommended the Russian
government should avoid investing in TAPI because of security
concerns and questions over the viability of the project.”

With exports planned for both eastern and western markets, Russia
may continue to try to stymie efforts for expansion.
Turkmenistan’s gas could grow to rival Russia’s own exports to
China impinging on its market power with China and either forcing
Russian prices down or gradually eroding its market share – both
unsavory outcomes for Gazprom and Russia.

Russia’s “sphere of influence” strategy demands, however, that it
remain involved in the region so it will no doubt keep a keen eye
on how Turkmenistan chooses to develop and market its reserves.

US

The US is backing the TAPI pipeline as preferable to the IPI line
because it would choke Tehran financially and, it hopes, delay
its suspected nuclear weapon program.

It also views Southeast Asia-South Asia and Central Asia as the
regions that should play a crucial role in stabilization and
peace in the Asian Continent. In this broad connectivity scheme,
Afghanistan stands out as the tenuous bridge between Eurasia and
the South and South East Asia. That is why Washington encourages
the installing gas pipeline from Turkmenistan to India via
Afghanistan. The more nations with vested economic
interests in making Afghanistan a stable, viable transit country,
the less resources the US will have to devote to its military and
drone campaigns.

Turning to the economic front, on September 14th Turkmenistan
offered U.S. energy majors their first access to the Central
Asian state. As Reuters
reported in August,

State television named
Chevron Corp (CVX.N), ConocoPhillips
(COP.N), Houston-based TXOil Ltd and Abu Dhabi-based Mubadala Oil
and Gas as the preferred bidders for two offshore oil blocks
within Turkmenistan's portion of the Caspian Sea.

ExxonMobile, Shell, Chevron, Petronas and Temasek of Malaysia
were all present at the Turkmenistan-Afghanistan-Pakistan-India
(TAPI) pipeline roadshow which began on September 17th.
After the road show, the delegation moved to Ashgabat on
September 22-23 for the Technical Working Group (TWG) and
Steering Committee (SC) meetings of the project.

ConocoPhillips and Mubadala had bid together for access to the
Caspian. The two companies are already working on an offshore oil
joint venture in Kazakhstan's portion of the sea.

India

India has arrived late to the New Great Game and is looking to
strengthen its claim to influence and treasure in the
region. The TAPI pipeline would not only improve its
resource supply chains (assuming a relatively stable flow of
natural gas through Afghanistan which, admittedly, may be a tall
order), but would also give India a reason to join discussion of
geopolitical importance for the region. With its only
foreign military base located in Tajikistan, clearly India is
attempting to rally and cast its own shadow over Central Eurasia.

As noted above in our discussion of the TAPI pipeline, India
stands to gain a share of the 38 mmscmd’s of natural gas –
essential and relatively inexpensive fuel for future economic
growth.

EU

One of the planned pipelines is set to run across the Caspian Sea
to Azerbaijan and further to the European Union, where it could
ease the bloc's dependence on Russian gas. Turkey intends
to import and transport Turkmenistan’s gas through the proposed
trans-Caspian and TANAP pipelines. From there, gas could be
loaded onto the Nabucco pipeline and carried on to Eastern
Europe.

EU and US interests diverge to some extent when it comes to the
TAPI pipeline. The EU wants to see the trans-Caspian, TANAP
and Nabucco pipelines materialize soon and many fear that TAPI
will act as a distraction to this project. Berdimuhamedov
voiced his commitment to providing gas to Europe as a large part
of Turkmenistan’s diversification strategy; however, Europe has
yet to commit in writing to purchase contracts.

China

China has experience piping gas from Turkmenistan through the
region and across its own borders. The Turkmenistan-China
Pipeline which opening in late 2009 and is one of the longest in
the world is standing proof of China’s ability to negotiate with
its neighbors and effectively execute massive politically charged
gas transit projects.

Turkmenistan is also rumored to be pursuing a $4.1 billion
gas-for-cash loan from China to develop new gas fields and ship
the fuel east.

By intensifying trade and economic relations with Central Asia,
Beijing intends to develop its own periphery - its western
provinces including Xinjiang - and extend and tie them to the
wider region's economies.

End Game

Stepping back, there’s an incredible amount of interest in the
new hydrocarbon beauty queen of Central Eurasia. With
popularity come competing demands and tough choices, however, so
the true test will be for Turkmenistan’s authorities to
successfully navigate the dramatically changing playing field.